The Clock is Ticking for Fossil Fuel Companies

For over 25 years, companies have valued our ability to serve as their early warning system—to interpret emerging issues and trends in the sustainable development agenda and help them anticipate, understand, and respond to shifts in the business landscape.

One of the biggest stories of 2014 was uncertainty across the energy sector, which is set to continue throughout 2015, a seminal year in the transition towards a sustainable global energy future due to the Paris climate negotiations in December 2015. Price volatility coupled with record gains in renewable energy provision, the rise of divestment from fossil fuel companies, and growing momentum for real emissions reductions is placing pressure on society to act quickly in the fight against climate change. No actor is more impacted by these changes than fossil fuel companies. The time has arrived for them to engage constructively around the provision of energy under emissions constraints and recognize their new role in society.
On the heels of record declines in the price per barrel of oil since last June, the opening months of 2015 have seen further turmoil in the energy markets. The interdependency between oil and natural gas has lead to an accompanying slide in the price of natural gas with further declines expected. Yet amidst struggles in the fossil fuel market, the rise of alternative energy solutions progresses. This is a once-in-a generation opportunity to develop the burgeoning global renewables market and, depending on the outcomes, the public could see new approaches to energy policy.

Even with this opportunity, supporters of renewables fear that governmental support for renewables projects will decline with the abundance of cheap fossil fuels. But these concerns don’t account for the growing provision of energy arising from alternative technologies, the decline in the price of clean technology, and the clash between necessary and anticipated climate change commitments from the Paris Conference of the Parties (COP) and antiquated energy policies. For example, recent regulations passed by the European Union (EU) require member countries to cut greenhouse gas (GHG) emissions 40% below their 1990 levels by 2030. An even starker deadline comes from the Intergovernmental Panel on Climate Change (IPCC), which states “the world’s energy system needs to be zero emissions by 2100 if policymakers are going to prevent warming of more than two degrees above pre-industrial levels.” Any delay in building the necessary infrastructure for the provision of renewable energy will make capital investment more expensive, and increase the likelihood of missing zero emissions targets.

Reinforcing the rise of renewables delivery and climate policy imperatives, the theory behind the carbon bubble –or fossil fuel energy sources which cannot be burnt if the world is to adhere to a given carbon budget—took hold amongst the investment community in 2014 and continues to build momentum in 2015. This concept has provided a tangible argument for keeping fossil fuels in the ground and enabling a growing movement focused on divesting from traditional energy companies. Oil and gas majors BP and Shell, while slow to acknowledge the concept, are under increasing pressure to view climate change as a risk to their business. In addition to questioning their impact on the carbon bubble, recent shareholder resolutions ask both companies to test whether their business models are compatible with the pledge to limit global warming to 2C.

As fossil fuel providers reflect on their business models and the world waits for a global climate change deal in Paris, it’s likely that this year will be an important one for energy companies to make significant changes to their energy approach, even if their progress is gradual.